Saturday, January 31, 2009

No Going Back to the Bubble

Business investment, commercial construction, home building and exports all fell steeply, most of them doing so for the first time since the recession began 13 months ago. Data released this week suggested that the decline had continued. As for consumer spending, in only one other quarter since records were first kept in 1947 have final sales of goods and services produced in America fallen so much.

This economic contraction is the result of a huge economic bubble deflating. Reinflating it, even if it were possible (and it's not), wouldn't be a good thing, because it was a terribly wasteful use of resources. Does anyone think there needs to be more suburban housing built, and who could afford it since they're no longer giving away crazy mortgages to people without checking their incomes? Does there need to be more stores (commercial buildings) built? How can 'consumers' continue their wild spending spree since there is no more money to borrow from their rising home equity and credit cards are tapped out? How will anyone save for retirement if they don't start saving a whole lot and spending that much less?

Common sense tells you that much of this contraction of consumer spending (and everything resulting from it) is going to continue and, frankly, should continue. Stop trying to 'stimulate' the economy, as if it were a heart that has stopped beating and only needs to start beating again. The 'heart' that stopped beating in this case was an enlarged, fatally diseased heart that is dead, dead, dead.

There needs to be a different metaphor used than 'stimulate'. Perhaps 'transplant,' as in transplant a new heart into this economy. Or 'transform' this crazy, unhealthy, overbuilt economy into a German- or Swedish- like economy that is lean, efficient, high-quality, balanced, etc. Transforming this economy of ours from an unhealthy, consumerist, energy-gorging, environmental-destroying economy into a green, healthy, energy-sipping, 21st century, thing of beauty wouldn't happen overnight, but it could happen. Could.

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